China to ban ICOs
RegulationBit News Today2 min read
The People's Bank of China abruptly declared a complete ban on all ICO activities starting Monday, as reported in a joint statement by the nation's central bank and six other government administrations.
The authorities ordered individuals and organizations that completed ICOs to return funds, protect investor rights, and manage risks appropriately, warning that those refusing to halt operations or reimburse backers would face investigation and harsh legal penalties.
China's Crackdown on ICO Platforms and Cryptocurrency Investments
Cryptocurrency values plummeted immediately after the announcement, with Bitcoin among the assets experiencing sharp declines. According to Coindesk data, Bitcoin tumbled more than 5 percent on Monday to roughly $4,376.42 following the regulatory crackdown, while Ethereum, considered the larger beneficiary of the boom, dropped by over 12 percent. As reports of potential oversight circulated, two prominent Chinese platforms, ICOAGE and ICOINFO, paused their operations. According to Caixin, officials also shut down a weekend blockchain conference because of concerns that ICOs were serving to raise money illegally. While the notice asked local authorities to inspect platforms, Shanghai-based bitcoin exchange platform BTCC said it halted trading of ICOCOIN over the weekend.
The Emergence and Growth of ICOs
In an Initial Coin Offering, a company issues digital coins—referred to as tokens—in exchange for currencies of more liquid value such as Bitcoin, effectively circumventing the rules associated with traditional channels such as Initial Public Offerings. The fundraising practice expanded rapidly in China during 2017, drawing both legitimate developers and fraudsters while prompting regulatory scrutiny. In July, state news agency Xinhua reported that Chinese enterprises had gathered $383 million from 105,000 investors in the opening six months of 2017.
Although the fundraising boom supplied tech firms with essential development capital, it also created opportunities for fraudsters to swindle uninformed buyers, risking broader financial stability. The National Internet Finance Association of China had also cautioned the public about ICO dangers, citing inadequate disclosure and an absence of investor safeguards. According to Goldman Sachs, money raised through token offerings eclipsed traditional early-stage venture capital investments in the first half of 2017, though a Chinese internet finance committee warned that some projects were pyramid schemes and financial scams. Although the U.S. Securities and Exchange Commission has formally warned about the risks of token sales, China appears poised to outpace it in enforcing regulations on the rapidly expanding fundraising method.
